How technology is fueling the evolution of Africa’s financial services sector

The rapid growth of the nascent financial technology industry in Africa is a testament to the role advancing technology is playing in the evolution of financial services on the continent. Technology is fueling innovation and growth in the financial services sector, creating new opportunities and disrupting the way business has traditionally been conducted.

“The burgeoning middle class and abundance of SMEs in Africa present great opportunities for financial services companies to provide retail banking services to individuals, as well as trade finance to SMEs,” says Sumesh Rahavendra, Vice President of Sales for DHL Express Sub-Saharan Africa.

According to The future shape of financial services in Africa 2015 report by PwC, the financial services sector is a marketplace without boundaries. It explains that the risk of disruption in traditional African financial services market has triggered the need for entities to reassess their strategies. This has given rise to different kinds of innovation by stakeholders in the sector. But Rahavendra notes that “While most international banks are moving towards e-commerce, in Africa, a number of local banks still share information and conduct business with hard copy documentation”.

A report by Accenture, however, suggests a promising future for Africa’s banking sector. It reveals that the development of consumer payment networks took years to become fully functional in mature economies, while many countries in Africa are now beginning to expand their traditional payments infrastructure to adapt to new international standards.

“The local retail banking sector is increasingly making use of new technology such as ‘Mobile Money’ platforms. Consumers have started to move away from physical cards, instead relying on their mobile phones to conduct day-to-day banking transactions,” the DHL VP notes.

Mobile money use in Africa has increased exponentially over the years with nearly 70 percent of adults in Kenya reporting using their mobile phones for money transactions. The Global Findex shows mobile banking may help historically unbanked regions gain financial access.

For African SMEs which contributes more than 45 percent to employment and 33 percent to GDP of the continent, improving access to finance is crucial, and technology has been identified as a sure way of doing this. Africa’s growing middle class, one of the fastest in the world, has also opened the eyes of financial institutions to the massive potential that lies within Africa’s large consumer base. As these institutions exploit the opportunities offered by technology, several sectors of the African economy will feel the impact and grow.